Saturday, May 11, 2013


According to CNBC, the economy is growing, but underground:

The growing underground economy may be helping to prevent the real economy from sinking further, according to analysts.

The shadow economy is a system composed of those who can't find a full-time or regular job. Workers turn to anything that pays them under the table, with no income reported and no taxes paid — especially with an uneven job picture.

The article cites claims that the size of the underground economy in the United States has doubled since 2009. This is good news, in the sense that more economic activity is better than less. It does, however, inspire some unavoidable questions. For example, why are so many jobs going underground, a condition more commonly associated with corrupt economies "like Brazil or in southern Europe"? One reason is the rising costs of the welfare state:
"There's a lot of uncertainly about immigration changes and who will be legal, and about paying for Obamacare," she said, adding that most workers in the shadow economy are in the country illegally. "Government rules are keeping businesses from hiring."

A report from ADP Research Institute states that many employers, especially in low-wage businesses such as retail and food service, plan to reduce workers' hours to less than 30 a week to avoid having to offer health benefits through Obamacare (or pay a fine).

"This type of regulation could put more people out of work and into an underground economy," McHenry said.

The question is, what are the consequences? There are the obvious: The government does not collect taxes on the income of such workers. Because otherwise legitimate businesses can and indeed must pay "informal" workers in cash and therefore cannot deduct those wages as expense, we imagine most owners are, er, qualifying their own reported income. Also, we cannot count off-the-books workers, so government figures probably understate employment and economic growth, which might result in poorly-reasoned fiscal policy (in the alternative universe where actual economic conditions drive the political decision to increase or decrease the size of government).

But there is this, too, which concerns us far more than even hundreds of billions in lost tax revenue: When with regulation and taxation we drive the legitimate economy in to the shadows, we turn otherwise honest people who are only trying to earn a living in to dishonest people. Just as broken windows, litter, and graffiti beget more serious crime, underground business corrupts the soul, and makes people more likely to take or pay bribes, evade taxes, or otherwise break the law more comprehensively. Increasing quotidian dishonesty is a symptom of a culture in decline, and we ignore its consequences for posterity at the peril of our children.


  1. A large part of the underground economy involves illegal drugs. That business is huge in both urban and rural areas. Do you want to legalize and tax meth, cocaine, marijuana and other illegal drugs across the nation?

    And what about prostitution, another big underground business (brothels, streetwalkers, call girls, mistresses, and girls-next-door in need of extra money). Do you want to legalize and tax prostitution?

    Either way, those businesses "corrupt the soul."

    - DEC (Jungle Trader)

  2. when yard work is so regulated that it must go underground that is corrupting.
    if it is not illegal it is of no business of the state. If all things are subject to the state then all is illegal .if the state cannot determine its own legitimate business then all business is illegitimate

  3. I don't see what business the government has in a deal or transaction done between you and I. As long as it's not drugs, sex or stolen property, they need to butt out.


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